The Rogue Investor » pullback

Correction on, but this is not a top

Alex — Mon, 10 May 2010 05:20:31 +0000

This last week was quite a shock. 990 points.

Surprisingly, the S&P 500 is only down 8.74% from the top. While that is a big chunk, it less than 1% more than the last pullback. Chart:

We've tumbled 8.74% so far. The question is how much further will we go?

I’ve got a blue support line on the chart above. Based on it, we still have a little more to fall. Before that line we have the 200MA which could also be a point of support.

As far as analyzing the price movement, we have both bearish and bullish points here. The exchanges have closed in the middle of the range the last two sessions on ultra-high volume which shows both buying and selling.

The bottom line is the hedge funds are shaking out the amateurs as they buy on the way down. I expect to see a session where stocks close on/near the highs for the day after being down. This will be the turning point into a new leg of the rally.

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Major strength after selling pressure

Alex — Mon, 26 Apr 2010 03:40:43 +0000

I’m holding onto my longs but waiting to buy anything new.

This week’s trading left smiles on bull’s faces as prices rebounded and closed near or on highs every day. The rally is still on and earnings are producing all time highs. A main hesitation keeping me cautious is that the S&P is trading at resistance levels.

Here are some charts:

The S&P 500 - Price Analysis

Above, 1 shows the major drop on Friday (-1.6%) and 2 points out this last week of trading (+2.1%). Here you can see how each day this week closed on/near the highs after being down pretty significantly at some point. This, along with the above average volume each day is a very bullish characteristic.

S&P 500 - Resistance Line

This chart illustrates how prices have reached resistance levels. There are a couple of possibilities as far a future price movements.

First, we could see a pullback that many investors have been anticipating for a while now. The markets have gone almost 3 months and over 14% of gains since the last pullback. Second, the S&P could keep on rocking along the line.

If I’ve learned anything this year, it’s that the rally will outlast anyone’s projections and the only way to play this is to ride the wave.

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Correction Reaches Breaking Point

Alex — Mon, 01 Feb 2010 04:52:13 +0000

With February upon us, we have to wonder how much farther the market will fall. The S&P 500 is right at the trend line support levels and the MACD is reaching extreme, negative levels.

One characteristic that has got me wondering if the rally isn’t over for good is the size of this correction. Currently, we are down over 6.5% from the top. The last two pullbacks were only 5.6% and 4.3%.

The trend is definitely bearish as each regression is getting larger. Moreover, the volume has been much more bearish this time over as we see large spikes on the down-days and a drop-off on the up-days.

On a weekly basis, the damage looks less severe. Volume was lower in the second week of the pullback but both weeks finished on the lows.

Overall, this next week will be critical. If the market can’t hold at support, we could see quite a drop. I expect to see a pop that fails to make new highs and provides us an excellent point to short. Keep your eyes open and sell good news.

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Markets Fail to Move as Volume Picks Up

Alex — Thu, 19 Nov 2009 01:22:55 +0000

For the second straight day, the major indexes stalled closing just below yesterday’s final mark. While we haven’t seen definitive signs of a top (short-term or long-term), it does look like the momentum is gone and volume is turning bearish.

One thing that definitely looks like a possibility is another pullback. There are four visible on the chart above and it is a move that we are all becoming used to.

Now don’t get me wrong, there is nothing wrong with a pullback — it is something that is quite necessary for a healthy, long-term rally. My problem with the pullbacks we have been seeing in this market is that they are so often and there is very little “new” advancement. What I mean by “new” is that it is in new high ground above the previous top.

I’ve said it before and will say it again: these pullbacks are institutional profit-taking and more importantly, liquidation of positions that will ultimately cause a final top and new down-trend.

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Market Caps Off Terrible Week With Full Confirmation of Correction

Alex — Fri, 30 Oct 2009 23:50:49 +0000

And just like that, the rally is history. Today was the second big day of selling as the major indexes closed down over 2% – some closer to 3%.

The market is in correction and now the big question most investors will have is how far will it fall. Nobody knows, but all we need to do now is ride the wave down.

I added positions in the two ETFs I highlighted previously after they continued their breakout.

IBD suggests that we not short on the downside breakout, but rather on the first sign of weakness after the first pullback. Right now we have a little over 4% before the S&P hits the 200MA which could provide a bounce so I am still in favor of holding ultrashorts that would give us enough room to hopefully never fall down 5% on a pullback.

Otherwise, be patient and wait for the pullback. Regardless of what you do, know that we are in a down-trend now and could be for quite some time.